Why Keir Starmer’s botched honeymoon with business is firmly in the bin | Personal Finance | Finance

Two new surveys confirm that the new government’s honeymoon with business is well and truly over. The Confederation of British Industry found that firms now expect activity to fall in the next three months – the first time this year that expectations for growth have been negative.

The Institute of Directors revealed that confidence for the next 12 months has collapsed to within a whisker of the record low during the Covid pandemic.

Sentiment has also weakend in the rest of Europe, reflecting global supply and demand problems and worries about a trade war with the US. Both Germany and France are facing their own economic and political crises.

But the turnaround in the UK has been especially sharp – and the large increases in business costs in the Budget are to blame.

One mistake was to underestimate the importance of ‘animal spirits’. Ministers talked down the economy over the summer, then the Budget unleashed even bigger tax hikes than feared.

Another is the failure to explain the strategy for growth properly. Perhaps this week’s planned ‘reset’ will repair some of the damage. But in the meantime, the botched signals about the chances of more tax rises have undermined confidence further.

Finally, the new government does not seem to understand business. This was made clear by the ridiculous claim that raising taxes on business would not affect ‘working people’. In reality, business always pass on higher costs, whether through higher prices, lower wages, or fewer jobs.

All is not necessily lost. Weaker private sector activity might be offset by an improvement in the public sector. Slower growth might prompt the Bank of England to cut interest rates more quickly. But the outlook for the New Year is bleak.

Julian Jessop is a Fellow at the Institute of Economic Affairs